muses of the moment

January 21, 2014

Missing Reporter

Filed under: Credit Derivatives, Odds 'n ends, Peak Energy, Stock Market — totallygroovygirlfriday @ 10:10 am

In the informational age, missing reporters and/or their computers always make gg’s ears perk up. It usually means that they ran into a major truth. gg is always interested in the real truth. Here is a US reporter who was writing about the US oil glut that has not been seen for 11 days. Click here. Read the article carefully to see the truth and what might happen in the near future, barring extended market manipulation.

Updates: gg just heard a radio interview in which it was suggested that the oil/energy glut, thus over-production/lowered prices, was going to/is creating more investment from businesses, jobs, and economic growth. That is not the truth, it is either dumb or a distraction. The truth is hidden in the link above. What is the truth?  Why would lower energy prices not cause an increase in economic growth, but something else? Who might be upset about this? Should prices actually be lower, but aren’t? Think, search for the real. Perhaps Pam’s full article will help your search. Click here.

Here are some other articles to help with your research. These articles are not about Shell, it is about how oil companies (and all commodity companies) do business, make profits, and structure their debt. Who owns that debt? Through what investment vehicles do they own that debt? Click here and here and here.  Does OPEC make money on oil production/sales or other investment vehicles?

Questions. Questions. Questions lead to more questions.

And of course, here, gg did the underlining:

Alongside the pull-back from some western banks, another emerging advantage for the oil majors is the capability to offer more competitive pricing. This is both through their ability to embed derivatives in the physical supply deals they will have with firms in such industries as shipping and also through the fact they aren’t required to add on a credit valuation cost.

What has happened over the past couple of years is that banks have been pricing in CVA [credit valuation adjustment] for counterparty risk. Oil majors typically do not price in CVA, which in some cases makes them more competitive,” says Standard Chartered’s Koh.

Richard Ng, a Singapore-based venture capitalist with Kind Resources and former co-head of global commodities marketing at UBS, points out that for corporates, embedding derivatives in physical deals avoids mark-to-market losses.

“[Having] embedded derivatives contracts with physical trading houses or oil majors essentially solves having to recognise mark-to-market losses on derivative contracts,” he says.

Dodd-Frank has moved commodity derivatives away from US banks and transparency. Derivative contracts (especially losses) may not appear on oil company balance sheets. It also makes market manipulation of the underlying asset very inviting to those with that influence. 

This post is in gg’s humble opinion, she is not an energy market expert by any means.

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